When Lloyd's of London Offered to Provide Insurance to Merchant

question 62

Multiple Choice

When Lloyd's of London offered to provide insurance to merchant ships in the eighteenth century, Lloyd's was:

• A) exhibiting risk-averse behavior.
• B) less sensitive to risk than those who requested insurance.
• C) attempting to decrease its exposure to risk.
• D) not very rational in its behavior.

---

Definitions:

Expected Utility Function

A concept in economics that predicts the utility or satisfaction a rational individual expects to receive from different outcomes, used in decision making under uncertainty.

Sure Payment

A guaranteed payment, often referring to financial transactions where the payer is obligated to pay a certain amount.

Lottery

A form of gambling which involves drawing lots for a prize, often administered by state or federal governments.

Probability

Probability is a measure or estimation of how likely it is that an event will occur, expressed as a number between 0 and 1.